Letter to Attorney

Dear Attorney,

Good day. I represent a company that regularly engages with various suppliers. Recently, we encountered a situation where one of our suppliers collected a check for payment but failed to issue a collection or acknowledgment receipt. We are concerned about the legal implications of this for both parties.

Could you kindly clarify whether the supplier is legally required to issue such a receipt under Philippine law? Additionally, what penalties, if any, could the supplier face for failing to provide this receipt? Is there also a risk of penalty or liability on our part for not ensuring that a receipt was issued? Any guidance on how to handle this situation in compliance with the law would be greatly appreciated.

Thank you for your expertise.

Sincerely,
A Concerned Business Representative

Legal Article: The Legal Requirements and Implications of Not Issuing a Collection or Acknowledgement Receipt for Checks in the Philippines

Overview of Receipt Issuance in the Philippines

The issuance of receipts, including collection or acknowledgment receipts, is a fundamental aspect of business transactions in the Philippines. It serves as proof of payment and ensures accountability for both the payer and the recipient. This article will explore the legal requirements surrounding the issuance of receipts, potential penalties for non-compliance, and the corresponding obligations of both parties under Philippine law.

Legal Basis for Issuing Receipts in the Philippines

1. Tax Code Requirements

Under Section 237 of the National Internal Revenue Code (NIRC), as amended by the TRAIN Law (Tax Reform for Acceleration and Inclusion), every person engaged in trade or business is required to issue an official receipt (OR) or invoice for each sale of goods or services. Specifically:

An official receipt is mandatory for services rendered or payments received.
For every collection of payment, businesses must issue an OR that contains essential details, including:
- The date of transaction,
- Name, address, and Tax Identification Number (TIN) of the issuer,
- Amount of payment, and
- Breakdown of the transaction details.

Failure to comply with this requirement constitutes a violation of tax laws and may result in administrative or criminal penalties.

2. Civil Code of the Philippines

The Civil Code of the Philippines, particularly Article 1233, emphasizes that the delivery of payment must be properly acknowledged to extinguish an obligation. This acknowledgment typically takes the form of a receipt. A debtor (payer) is entitled to demand a receipt upon making payment, and a creditor (payee) has the obligation to issue it. In the absence of such a receipt, disputes may arise as to whether the payment was actually made.

Penalties for Failing to Issue a Receipt

1. Administrative Penalties

The Bureau of Internal Revenue (BIR) imposes strict penalties on businesses that fail to issue receipts:

A fine of up to ₱50,000 for non-issuance of receipts,
Suspension or closure of the business establishment for repeated violations under the Oplan Kandado Program.

2. Criminal Liabilities

Under Section 255 of the NIRC, any person who fails to issue the required receipts may face criminal prosecution, with penalties that include:

A fine ranging from ₱10,000 to ₱50,000, or
Imprisonment of up to four (4) years.

3. Civil Implications

Failing to issue a receipt can have contractual consequences. In the absence of a receipt, the payer may contest the fulfillment of their payment obligations. This could lead to disputes or legal actions to enforce or contest the payment. Courts may also impose damages against a supplier for failing to meet their obligation to acknowledge payment.

4. Consumer Protection Violations

Non-issuance of receipts may also violate the Consumer Act of the Philippines (RA 7394) if it involves consumer goods or services. This law ensures that consumers are provided with clear documentation of transactions, and violators may face penalties from regulatory authorities.

Obligations of the Payer (Check Issuer)

While the legal obligation to issue a receipt primarily falls on the payee (supplier), the payer also has certain responsibilities:

Demanding a Receipt: Article 1233 of the Civil Code grants the payer the right to demand a receipt. Failing to secure a receipt could weaken the payer’s evidence of payment in case of disputes.
Preserving Records: Payers should retain records of payments made, including copies of checks and any correspondence related to the transaction.
Compliance with Internal Controls: Businesses should establish policies ensuring that all payments are documented with corresponding receipts.

Best Practices for Compliance

1. For Suppliers (Payees)

Issue a receipt immediately upon collecting payment, regardless of the payment method (e.g., cash, check, electronic transfer).
Ensure receipts comply with BIR regulations, particularly in terms of content and format.
Train employees on the importance of receipt issuance and its legal implications.

2. For Payers (Check Issuers)

Always request a collection or acknowledgment receipt for every payment made.
Maintain a checklist to verify that receipts are obtained for all transactions.
Avoid releasing payments to suppliers with a history of non-compliance with receipt issuance.

Practical Implications in Case of Non-Issuance

Scenario 1: Dispute Over Payment

If a supplier collects a check without issuing a receipt, the payer may contest the validity of the transaction, arguing that payment was not made or properly acknowledged. This could lead to costly litigation.

Scenario 2: Tax Audit Risks

The non-issuance of receipts could expose the supplier to scrutiny during a BIR audit, particularly if discrepancies arise between reported income and actual collections.

Scenario 3: Reputational Damage

Non-compliance with receipt issuance can harm a supplier’s credibility and relationship with clients, potentially leading to loss of business.

Resolving the Issue

1. Amicable Settlement

The parties involved should first attempt to resolve the matter amicably by requesting that the supplier issue the missing receipt. Documentation of the payment, such as copies of the check and communication records, should be provided.

2. Filing a Complaint

If the supplier refuses to comply, the payer may file a complaint with the BIR or relevant regulatory authorities. Evidence of the transaction should be submitted to support the claim.

3. Litigation

In extreme cases, disputes may escalate to litigation. Courts may require the supplier to issue the receipt and may impose damages or penalties for non-compliance.

Conclusion

The issuance of receipts is not merely a procedural requirement but a legal obligation under Philippine law. Suppliers who fail to issue collection or acknowledgment receipts expose themselves to significant administrative, criminal, and civil liabilities. On the other hand, payers have a duty to ensure that their payments are properly documented.

To avoid legal complications, both parties must adhere to best practices and uphold the principles of transparency and accountability in all financial transactions. Businesses should also seek professional legal advice to address specific concerns and ensure compliance with relevant laws and regulations.